GLOBAL MARKETS-Yen snaps three-day drop; U.S. stocks flat

Tue Apr 9, 2013 11:58am EDT

* Yen's slide halts just before 100 to dollar

* BOJ action keeps global bond yields near lows

* Benign China inflation data boosts copper sentiment

* U.S. stocks reflect earnings expectations

NEW YORK, April 9 (Reuters) - The yen rallied on Tuesday, snapping a three-day decline against the dollar as it neared 100 to the U.S. currency, while expectations for modest growth in corporate earnings capped stocks and overshadowed a fall in Chinese inflation.

The Japanese currency weakened to 99.66 to the dollar, using Reuters data, the greenback's strongest level against the yen since May 2009, before the sell-off in the yen stalled.

Analysts believe it is only a matter of time before the dollar sails past the 100 yen mark.

"Given the breadth of yen bearishness, any reprieve would likely encourage investors to re-establish short yen positions at more favorable exchange rates," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.

Tuesday's dollar selling left the greenback down 0.5 percent at 98.92 yen.

The U.S. currency has still gained around 7 percent against the yen since the Bank of Japan unveiled a massive stimulus program last Thursday involving large purchases of long-term Japanese government bonds.

The BOJ's bold measures have had a major impact on the world's main debt markets, sending Japanese government yields down sharply and spurring a search for higher-yielding assets, which has caused yields to fall on U.S. and euro zone bonds.

"Markets are increasingly focused on the notion that larger JGB purchases, at longer maturities, by the BOJ could push Japanese domestic long-term investors elsewhere," said Vassili Serebriakov, strategist at BNP Paribas in London.

However, yields on highly rated euro zone bonds moved up from record lows on Tuesday as investors began to position for fresh government debt auctions.

German 10-year bond yields were higher at 1.263 percent, having hit 1.2 percent on Friday, their lowest level since mid-2012 before European Central Bank President Mario Draghi promised to do whatever it took to save the euro.

U.S. government debt prices edged higher on Tuesday in advance of a $32 billion auction of a new three-year note issue, which was the first part of the $66 billion in total supply of longer-dated debt this week.

Benchmark 10-year Treasury notes were up 3/32 in price, yielding 1.7348 percent, down 1.4 basis points from late on Monday.

STOCKS RISE

Equity markets were mostly higher earlier in the global day as investors hoped for more accommodative monetary policy from China following benign inflation data, though they began to pare gains into U.S. trading.

MSCI's world equity index, which tracks share prices in 45 countries, was up 0.4 percent. Europe's FTSE Eurofirst 300 index finished down 0.1 percent with concerns about a weak first-quarter earnings season outweighing prospects for continued strong metals demand from China.

U.S. stocks stalled midway through the New York session.

The Dow Jones industrial average was up 21.23 points, or 0.15 percent, at 14,634.71. The Standard & Poor's 500 Index was up 1.62 points, or 0.10 percent, at 1,564.69. The Nasdaq Composite Index was up 1.74 points, or 0.05 percent, at 3,223.99.

The liquidity stemming from the Federal Reserve's ultra-loose monetary policy means stocks will face more of a "rolling correction" among sectors than a large sell-off, said Dan Veru, chief investment officer at Palisade Capital Management LLC in Fort Lee, New Jersey.

"I'm expecting us to be in this sideways period where you'll have some outperforming sectors that might be subject to profit-taking and some underperforming sectors that might get attention," Veru said.

Alcoa Inc, the first Dow component to release results, reported a higher quarterly profit but lower-than-expected revenue after the bell on Monday. Shares of the largest U.S. aluminum producer fell 0.6 percent to $8.34. .

Weak demand in Europe was a key drag on Alcoa's results, and also hurt March sales at Volkswagen with shares in the German carmaker dropping 2.9 percent.

CHINA STIMULUS

China's annual consumer inflation cooled in March as food prices eased from nine-month highs and producer price deflation deepened, data showed on Tuesday, leaving policymakers room to keep monetary conditions easy and nurture a nascent recovery.

The Chinese data underpinned demand for copper, which climbed to a two-week high of $7,620 a tonne on the London Metal Exchange before paring slightly to trade at $7,610 a tonne, up 2.1 percent.

Brent oil also gained on the Chinese data, and a stalemate in talks between Iran and Western nations over its nuclear program and rising tensions on the Korean peninsula also supported prices.

Brent rose 0.2 percent to $104.86. U.S. oil futures were little changed at $93.35 a barrel and

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